China stocks recoup losses as infrastructure shares jump; Hong Kong lower

* CSI300 +0.1 pct; SSEC -0.3 pct; HSI: -0.4 pct;

* Sentiment in China aided by $724 bln transport investment plan

* Shares of Macau gambling stocks fall on tighter regulations

SHANGHAI, May 12 (Reuters) - China stocks dropped to two-month lows when trading opened on Thursday but erased the losses by midday, as Beijing’s $724 billion transport investment plan bolstered infrastructure shares and eased worries about a shift in economic policies.

However, Hong Kong shares fell following a dismal day on Wall Street.

At midday, China’s blue-chip CSI300 index was up 0.1 percent, to 3,085.63 points. The Shanghai Composite Index was down 0.3 percent, at 2,828.92 points.

The confidence of investors had been hurt by a People’s Daily article on Monday that hinted Beijing will no longer use rapid credit expansion and loose monetary policies to stimulate growth.

But they drew solace from a massive investment plan announced late on Wednesday.

China will invest around 4.7 trillion yuan ($724 billion) in transport infrastructure projects over the next three years, the country’s transport ministry said.

Qu Hongbin, HSBC chief China economist, wrote in a note that “continued delivery of fiscal easing to support infrastructure investment holds the key to a sustained growth recovery.”

“We believe that a shift towards a neutral (let alone tightening bias) would be highly pre-mature and risks derailing the nascent economic recovery,” he said.

Infrastructure stocks rose sharply on the news of the spending plan.

But the consumer and healthcare sector fell as investors took profit from indexes gained more than 2 percent on Wednesday.

In Hong Kong, the Hang Seng index dropped 0.4 percent, to 19,969.01 points, while the Hong Kong China Enterprises Index lost 0.1 percent, to 8,439.48.

Shares of online game developer Boyaa Interactive International Ltd slumped to a record low after the company said its chairman is being investigated by judicial authorities in China.

Shares of Macau gambling stocks fell with MGM China leading the slide after the government of Macau said it would tighten regulations for junket operators.

Reporting by Samuel Shen and Pete Sweeney; Editing by Richard Borsuk